Morning Brew Daily - Why Reddit IPO Favors Loyal Users & The Massive AT&T Outage

Episode Date: February 23, 2024

Episode 265: Neal and Toby break down Reddit's IPO and why it's favoring their most loyal users. Plus, the dangers of Chinese hackers on US data and there was an AT&T outage that left thousands across the US without power. Next up why Google is pausing their Gemini AI service and the guys share their stock and dog of the week. And finally why over half of college grads aren't even using their degrees. Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning, Brew, Daily Show. I'm Neil Fryman. And I'm Toby Howell. Today, Google's AI program, Gemini, is getting bashed for being woke, but it might reflect even bigger problems for the tech giant. Then we have our first social media IPO coming up since Pinterest debuted in 2019. Let's see if the market has an appetite for Reddit shares. It's Friday, February 23rd.

Let's ride. One small step for robots, one giant leap for NASA's commercial lunar payload services program. At 6.43 p.m. Eastern yesterday, the Odysseus robotic lunar lander touched down successfully on the moon, becoming the first U.S. spacecraft to land on the lunar surface since 1972. It is a huge win for the company that executed the mission, intuitive machines, and a stamp of approval for NASA's big push into commercial partnerships as it increasingly relies on private companies for space exploration. Many of these private sector trips to the moon have ended in failure, including one earlier this year. So you can assume they're just going to bed now in Mission Control in Houston.

It was a fun afternoon yesterday. Our Slack channel is kind of popping off. Lots of jokes, lots of uncertainty when we weren't sure if it was going to touch down or not. I think this is so interesting, though, because intuitive machines is a publicly traded company. And some of the analysts covering this company were like, listen, we don't really know how to price in a moon landing if it goes well or not. So it is interesting seeing the public market react to the first, like, successful moon landing. Yeah. It's super hype. This thing is going to be on the South Pole of the Moon doing science experiments for the next week before it kind of shuts off.

But we'll see what happens that, you know, moon landings just might become a part of our lives now. And it's just not even worth remarking upon. Let's hope we get there. Let's bring it back. Okay. But enough of this moon talk, Neil. Let's return to Earth so we can tell you about our sponsor, Vime. Toby, you just missed the perfect opportunity to use VEM.

Meem me up, Scotty. You just had the space lead in and everything. You know what? You are right. But, okay, I'm going to take a page out of Veem's playbook here in Recovering Style and just say it now. Veem me up, Scotty. Doesn't quite hit as hard when it is forced like that. But hey, I like the radical resilience and I can tell that VIM is rubbing off on you.

I mean, we have spent nearly two months together at this point. I would hope so. If you want to spend some time with VIM, head to VIM.com to learn more. That's VEEAM.com. Study. And play. Come together on a Windows 11 PC. And for a limited time, college students get

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While supplies last, ends June 30th, turns at AKA.m.m.S. College PC. If you missed out on the crazy Nvidia rally but have an overactive presence online, you still might be in for a little financial windfall. That's because Reddit officially filed for an IPO with the SEC yesterday after years of speculation. Its public debut is expected sometime in mid-March, and when it comes, it will be anything but ordinary. Reddit is planning to reward a chunk of its IPO shares to its users before the stock starts trading, which is a privilege usually only offered to bigger investors. So if you're one of the 75,000 or so most active users on the platform, Reddit is granting you an undisclosed amount of shares to reward that loyalty. This is risky, though.

The reason that IPO underwriters generally favor selling IPO shares to bigger money managers is that they tend to hold stocks for a relatively long time. Individual investors, on the other hand, a lot more fickle and a little bit more prone to selling. Neil, good idea to reward the community on a community-based platform like Reddit? Or is this something that sounds better in paper than in practice? Yeah. Well, Robin Hood kind of sort of pioneered this concept when it went public in 2021. But I think it's reflective that Reddit's just going to live or die with its community. Because that's what powers this website to be so influential in the first place.

But it's also faced a lot of backlash from its Redditors over eight changes in API and anything else that it's done over the past bunch of years that it's been. a company. So it's going to really just ride or die with its fervent community. Yeah, it definitely is lived by the community, die by the community. It is a weird system of hierarchy as well, because if you literally have accumulated some of the most karma on the platform, which is kind of like Reddit currency, if you will, you get shares of the company, which is very interesting because it's literally rewarding the chronically online. It's also rewarding moderators, the people who help kind of run these communities successfully. Some people are pushing back and saying, just pay the moderators.

They're basically doing a job, a service for your company. And yes, it's nice to give them a financial windfall from the IPO, but also just put them on the payroll at some point. Let's talk about Reddit's financials because when it files for an IPO, it kind of has to disclose how much money it's made. So its revenue for 2023 was $804 million. That's up 20% from the previous year. It's still lost making.

It hasn't turned to profit since it started to become a company in 2005. It is just small. There's no other way to say it. They started at the same time as many other social media platforms like meta and Twitter, and they are just much smaller. They make a lot less money than those other platforms. They do have way more influence in the culture, I think, than they do as a business. And so I think that's what, you know, when you're looking at an actual IPO and whether I'm going to buy shares in that,

you actually have to look at the dollars and cents that they're making. Yeah, it's one of the most visited website. in the U.S., but it just hasn't been able to build an advertising business that rivals the size of a meta or a Google. It's not even a fraction of the size of those businesses, but I do think they've maybe stumbled upon a nice revenue stream. They are now listing data licensing and model training as one of their potential revenue stream. So earlier this week, they announced this AI training deal with Google that will give Google access to more efficient ways to train this models, essentially, so they can use Reddit's huge, huge database of tech,

posts and communities to train your models. And that's coming in at around $60 million per year. So I do think if you are the quote unquote front page of the internet, there will be some streams of revenue when it comes to training these AI models. Whenever I go on Reddit, I'm like, I should use this more. Yeah, I've never been a big Redditor. I have been getting into it, though, because I'm a big runner, and they have good, like if you want to know what people think about a running watch or shoes, it is a great place for that. So yeah, you're all right. Every time I go. You're like, this is a huge trove of information.

You know, if you want to, if you go some, if you're planning a trip or something, you know, there's, there's just great information out there that people provide. So we'll see whether that sort of information leads to an actual, actual better business performance. But right now, they're just, they're just small fish in the social media pond when it comes to actual financials. Moving on, remember when everyone freaked out about the Chinese spy balloon last year? Well, yesterday we learned about Chinese espionage efforts that are like, hundred times a bigger deal than that. And it confirms that U.S. officials have been saying for a long time, which is that Chinese hacking represents one of the top national security threats to the country. A trove of documents from a Chinese hacking group was leaked, giving the public an

unprecedented look into the vast network of private companies that compete for contracts with Beijing to conduct cyber espionage. The company whose documents were leaked is called Aissoon, and the files show that they worked with Chinese government officials to target more than 24 nations, international companies, and infrastructure, including the software of Microsoft, Apple, and Google. One example showed how the firm obtained road network maps in Taiwan, which would be very helpful to China in a hypothetical invasion. The U.S. has been extremely concerned about Chinese hackers. Last October, FBI chief Christopher Ray told 60 minutes that China had stolen more personal and corporate data than every other nation combined. Yeah, this was, I think we throw around the word treasure trove.

too much, but this absolutely was a treasure trove of documents. The coolest, or not the coolest, but the most interesting part of this to me is how it's such a normalized service in a way. Like, there is literally, I soon has a website that you can go on to and basically go through a menu of services that you pay for. So if you're a local government who wants access to the private website traffic of police in Vietnam, that'll set you back 15,000. Maybe you want to buy some software that runs disinformation campaigns.

That's 100K. You can pay 278K to get a treasure trove of personal info on social media accounts like Telegram and Facebook. So it literally is something where you go, hmm, what am I looking for today? And it is like a real business. It's a real cottage industry. Yeah, I think one of the biggest revelations of this leak was how the Chinese hacking network operates, which is that you have the government as the big customer. And this network of private companies has spawned around them. and they are cutthroat rivals. Like, they are just going after these contracts left and right,

and there's just a huge network that all are pledging their services to the Chinese government for contracts that can extend up to $800,000, you know, if you want to compromise a Twitter account or something. Yeah, you literally have to compete for new hires in the marketplace, and you're also kind of, you have to advertise your services to these provincial governments to kind of attract those contracts. It's kind of like consulting in the U.S. That's how, all of this is to say,

that's how established this industry, in that all the fears of Chinese cyber attacks are completely granted, they're very valid, and they confirm a lot of the fears that U.S. lawmakers have had for a long time. Already, we've seen Chinese hackers kind of compromise certain infrastructure here in the U.S. And to lawmakers, they're like, they're sending a message to us about how easily they can do this. We're seeing Chinese code pop up in local infrastructure near military bases and whatnot. So, again, it just goes to show that these fears are not over. blowing. Let's move on. Remember those old, can you hear me now ads from Verizon back in the day?

Well, AT&T customers just lived that campaign out in real life yesterday after outages disrupted service across the country. First reports of outages started rolling in at 4 a.m. early yesterday and peaked at 71,000 before 8 a.m. Eastern Time, according to the site, Down Detector. Other phone networks also received reports of outages, but T-Mobile and Verizon said their networks were fine, Those reports were mostly coming from people trying to call someone on AT&T's network. Rumors were struggling yesterday that it could have been a potential cyber attack, which caught the attention of the Federal Communications Commission, Department of Homeland Security, and FBI who were all investigating.

But last night, AT&T set the record straight saying that the outage resulted from an error made while it was trying to expand its network, not by a cyber attack. Still, a stressful day yesterday for AT&T. And people. I mean, people who had AT&T. You know, couldn't use their phones. I think that was kind of a startling wake-up call for everyone on their commutes. I mean, you had first-person accounts of people being on the Chicago train commuting into the city. Everyone's just kind of like twiddling their thumbs because typically people work on their phones during the commutes.

It was just kind of like a moment to reflect on the fact that how much we use our phones and how critical they are to our lives. Yeah, absolutely. Network outages are a big deal because they are dangerous. I mean, it's very concerning when you're not able to reach emergency services like 911. And there was a lot of people who ended up calling 911 to test to see if their phones are working. And a lot of different departments are saying, please don't do this. Call your friend or something. Don't test it out with us. I will say, though, that this was a big moment for Apple's SOS feature to sign because Apple has this feature baked into most of their modern iPhones

where you can still connect to other people's networks or satellite networks in order to access emergency services. We talked about this when it came to the Maui wildfires last year, and that this is kind of a moment for Apple to that feature to show off and say, like, hey, you're still connected even though your network may be down. Right. It was a moment for everyone to say, okay, I don't have cellular data, but there are other ways to make calls. You can use the SOS feature, though. That is specifically for emergency services. it automatically makes a call to 9-1-1 and shares your location. But there are other ways to make calls, too.

If you're in a place with Wi-Fi, you can just link up to Wi-Fi and make a call as you would normally. You can also do it through various apps like FaceTime and WhatsApp. You can make calls through them. So this is just maybe a learning opportunity for people to say, okay, I can't. I don't have cellular data, but there are other ways to contact people. There was a lot of jokes on social media yesterday that you remember, Obadi, I'm going to produce this Netflix kind of dystopian thriller that also has this cell outage scene. And it kind of leads to an apocalyptic scenario.

So a lot of people are saying like, all right, Netflix, we get it. You want to market this new movie. You didn't have to go this hard and really knock down the network. So there were some jokes also flying yesterday. Okay, let's hear a quick word from our sponsors. But stick around because you're going to want to hear about Google's latest AI mess up right after this. If InVidio was the toast of the tech world this week, Google was the fire. Hydron, everyone was taking a leak on.

The company paused the ability for its AI program, Gemini, to generate images after coming under heavy criticism for producing images that were historically inaccurate. Specifically, it created images that showed racially diverse people in situations where there just would not have been. For example, when users asked Gemini to generate images of a German soldier in 1943, it showed black and Asian people, a search for U.S. senator from the 1800s returned black. and Native American women, even though the first woman didn't become a senator until 1922 and she was white. Google said it took these concerns seriously and was going to fix Gemini, so it wouldn't make

these errors, but stood by its commitment to train its AI to produce images of diverse populations. Overall, this episode shows how generative AI programs are going to be at the center of the culture wars, with people on both sides scrutining their decisions for any political bias. I think it also is showing how badly open AI is kind of of overshadowing Google here because, first of all, Google's big Gemini update that they rolled out was totally kind of co-opted by Open AI announcing SORA, which is their text-to-image generator. So first of all, people were just saying, good gosh, like Google is like four steps behind

Open AI. They can't even get their text-to-image generator working correctly. And I also do think that this shows that, remember, AI models still kind of hallucinate, produce results that are unsatisfactory or are just untrue. lot of ways. And so to help alleviate these errors, companies use this process called fine-tuning, which is usually humans get involved and start trying to make, deem those responses if they're accurate or not. So Gemini seems to have gone a little overboard in trying to include diversity in some of the images it generated in this fine-tuning process. So it just shows that still this is

not a perfect process getting these models to spit out exactly what you want them to do. You can see where Google is coming from. I mean, when these AI models were released, and for many years, researchers have said these things can be biased toward white people. They can show racial discrimination towards people of color. And when these models were released, researchers went in and found that was happening. Washington Post did a study of stable diffusion and asked it to produce people who were on food stamps, and it showed primarily non-white or darker skin people, despite 63% of recipients

of food stamps being white. That was kind of replicated across various models. So there has been some correction to this because this has been one of the main concerns about AI is that it would continue racial discrimination baked into the models. And Google was trying to correct that. They said that they overcorrected. Yeah, they tried to make sure that the open-ended prompts, like if you said, give me a person walking a dog, which is something that anyone of any race or color can do.

And that's a universal experience. But then when it comes to historical experiences, they have a lot more nuanced. and that's where it started to go awry. It's Friday, so we're bringing you a steaming hot helping of stock of the week, dog of the week, where we look at one stock that has perfect posture and another that is dealing with lower back pain at a young age. As always, Neil and I are just humble podcasters, so please do not take any of this as financial advice.

Neil, I won the pre-show amphibious creature naming contest. Skinks are not amphibious, Neil. Come on. And my stock of the week is Japan. Now, for those loyal listeners of the pod who can, think back to last week's Friday show, you might recall that Japan was my dog of the week. And that was because the Japanese economy had slipped into a recession. This week, however, it's Niki Stock Index hit an all-time high. Get this, you guys. The last time the Japanese

stock market was flying this high, the year was 1989. It took 35 years for the market to recover from a lengthy period of economic stagnation following the market's collapse beginning in the 1990s. What sparked the recent rally? Well, in the near term, it was actually none other than Nvidia's strong earnings call, which lifted stocks worldwide. But if we zoom out, foreign investors have been pumping money into the market with 14 billion of net inflows in January alone. While a weak yen has caused stocks in Japan to look more attractive to bargain hunters, Japan is back. Japan's stock market is back, at least. Japan's stock market is back, and it is kind of the usual suspects with AI.

There have been certain companies that are part of this. semiconductor ecosystem that have just been 10 baggers. They've, you know, exploded over the past few years. But there has been certain reforms coming in 2012 that made the, made Japanese corporations work a little more like Americans with American corporations work with, you know, activist shareholders and a focus on returning money to stockholders. And that shift that Shinso Abe, the former Prime Minister kind of enacted, has changed the corporate culture, or at least the stock market in Japan, to look a little bit more like the United States. There's more foreign influence in these companies.

They export more. They're way more entwined with the international markets. And Japan is sitting in this sweet spot because it is allied with the U.S. as the U.S. and China decouple a little bit. Then U.S. is turning more towards Japan, and our trade flows are becoming way more intertwined. And so it's just sitting in the sweet spot right now where it's going to be really, you know, really beneficial for AI and also geopolitical tensions. It's just looking good with the U.S. Yeah, according to a survey of fund managers conducted by Bank of America, buying Japanese stocks was the third most popular trade this year.

The only two that are more popular is betting against Chinese stocks. So it's kind of benefiting from that like reverse halo effect and then also putting money into the magnificent seven as well. And Warren Buffett's been big in two. He loves the Japanese trading houses. Yeah, that is a cool business. All right. Let's go to the dog of the week. Apparently, everyone missed reading good housekeeping magazines in the waiting room over COVID,

because virtual healthcare giant Teledoc is not doing well. Shares of the company plunged 27% after it said that growth would slow to a trickle this year. Teledoc's CEO said that the virtual healthcare space is overcrowded with competitors, and it's just not a growing industry anymore. He called it a replacement market because with most people having access to virtual care already, it's zero sum. The pie is just not getting any bigger. And in Teledoc's fall, you can see shades of Zoom or Peloton or any other pandemic

darling that in 2021 seemed like they would be the future, but it didn't turn out to be the case as behavior shifted back to normal. In Q4, 2022, virtual doctor visits plummeted 46% from the second quarter of 2020, and that trend continued downward in 2023? Yeah, there's just warning, signs, flashing wherever you look in this business. It definitely feels like a COVID-arid trend that did not pan out to be a larger shift in consumer kind of psychology that a lot of people predicted. If you look at BetterHelp, which is their virtual mental health business, that saw

growth that was completely flat in the corridor. And they actually attributed the weakness to lower direct-to-consumer marketing yield, which basically is advertising speak for. we were putting this out for consumers to see we are marketing this, and we saw no revenue growth from it, which I think is the clearest sign that, like, people are saying, we do not have the demand for this service that you think we do. We don't really want to use telehealth or telemental health services. It's another black mark for Kathy Wood as well, who was the famed stock picker of the COVID era. She piled into all of those COVID stocks, Zoom, Roku, Peloton, all of those, Tesla.

and she at one point had Teledoc as the third largest holding. And so this is just another sign that maybe Kathy Wood's magic touch during COVID is not panning out in the long term. She's going down to Teledoc shit. I was looking at her stock buys of it. She has been buying consistently, even as recently as December. So let's see if this latest kind of blackmark on Teledyx earnings represents another buying opportunity for her. All right. Let's round out the week with a startling report about college graduates.

62% of them are working jobs that don't require a college degree. And once you get stuck in those jobs, it can be harder to find better paying ones. Even after a decade, 45% of grads work in positions that don't require a degree. The report by Burning Glass Institute and the Strata Education Foundation highlighted this massive pool of Americans that are considered underemployed or college grads working in jobs that don't typically require four-year degrees. And it's sure to reignite the debate over the value of a college. degree as tuition costs spiral upward. The conclusion of this research, and everyone in college listening should pay attention to this, your first job out of college is crucial. If you get a job that doesn't reflect your degree, then your career earnings will take a big hit over the long term

because you're likely to stick around that industry. But if you do get a job that uses your degree, you'll be on a lucrative path. Bachelor degrees holders in jobs that reflect their education earn nearly 90% more than people with just a high school diploma in their 20s. Tell me, what do you make of this? Yeah, I think the big takeaway here is that it's not that college degrees in general aren't worth it because we clearly see that if you college level jobs earn nearly 90% more than people with just high school diplomas in their 20. So clearly it's working for a small set of people, but it might not be working for a larger

set of people because clearly over half the people with the college degree are under-employed. Lloyd. And so I do think that it is kind of a, it's almost a power law where it's concentrating at the very top to people who enter fields that their college degrees benefited them. And now people who don't get on the right track immediately out of college are struggling even 10 years down the line. Another takeaway, and this is kind of disappointing because I didn't wish this to be the case, but was the power of internships. They're saying that if you need, you know, if you get an internship in your field that

will propel you to much higher earnings later. and I just think about colleges like Northwestern, or Northeastern, I'm sorry. Northeastern is so focused on internships, nearly all grads there, go through this six-month internship program, and then they place so many of them in fields, in jobs that their fields require. So that might be a model that more colleges might adopt as growing recognition of the fact that people get degrees and then don't actually work in fields where those degrees are useful, kind of gets publicized.

Yeah, get those internships. I do wonder, though, if this study kind of illustrates what maybe a misunderstanding of what college does in people's minds, because the college degree itself isn't the ticket to a job that it once was. It used to be that you get your bachelor's degree, you get your college degree, and then you enter a field of your choosing because that is your goal and ticket. But it does seem like a college education, though, you should benefit more from the actual education itself, build the skills necessary to enter the workforce. It's not actually that piece of paper that you get. So I wonder if people are kind of been sold this narrative like college degree equals job. But in reality, it's more skills learned at college equals job. That was my final takeaway from this.

Okay, that wraps up our shows for the week. But before I let you go about your Friday, major announcement, it is Toby's birthday on Sunday. So be sure to wish him a happy birthday in the YouTube comment so he feels the love. Toby, thoughts on turning 19. I know. I don't want to say my true age because then our Gen Z, millennial divide, might be a little more of a gray area, but I am in fact turning 27. So I expect the back pain to start hitting any moment now. All right. So as always, write in with any feedback or Toby birthday

wishes to Morning Brew Daily at MorningBrew.com. Let's roll the credits. Emily Milliron is our editor and producer. Raymond Lou is our associate producer. Eugenowa Ogu is our technical director. Billy Minino is on audio. Hair and makeup is not really using their accounting degree. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil. I wish you all well.